Banks have been reminded to adopt risk management system that will protect them from being a vehicle of illegal investment activities.
A memorandum dated November 26 and signed by Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi Fonacier said it is imperative that BSP-supervised financial institutions (BSFIs) adopt robust risk management system to identify, detect, prevent and mitigate risks arising from illegal activities.
“This is anchored on having a strong governance framework, adequate policies and effective controls, among others,” Fonacier added.
Fonacier said illegal investment schemes enticing the public to invest their money have been recently identified by supervisory authorities, such as the Securities and Exchange Commission.
The perpetrators operate by luring prospective investors with high returns or dividends, which are not normally offered by other financial service providers.
Prospective investors, meanwhile, may invest money or recruit others to do the same.
Fonacier explained these types of investment schemes include the “Ponzi Scheme” wherein a fraudster lures investors with the promise of high returns that are to be generated through the investment or business efforts of the fraudster.
“Instead of generating actual profits, the fraudster creates the illusion of profits by paying investors returns from their original investment or paying returns from the money that new investors contribute to the fraud,” she added.
The BSP senior official warned that this type of scheme tends to collapse when the number of new investments into the scheme do not satisfy the payment obligations for previous investors.
That said, she stressed: “banks and other financial institutions may be used to channel the funds amassed from these illegal investment activities, through deposit accounts of the lead perpetrators, their associates and related entities.”
“This issuance intends to provide the BSFIs insights on relevant practices and common red flag indicators that they should consider to strengthen their capability to proactively detect, prevent and mitigate risks arising from transactions that relate to illegal investment activities,” Fonacier added.